The Court of
Appeal for this district has ordered reinstatement of a $50 million-plus legal
malpractice action in which a Pasadena technology company contends that lawyers
representing it in negotiations with Microsoft negligently secured its unwary
acceptance of an out-of-the-ordinary licensing agreement depriving it of
royalties it should have received.

The
opinion, by Justice Elizabeth Grimes of Div. Eight, reverses a judgment of
nonsuit granted by Los Angeles Superior Court Judge Joseph R. Kalin,
terminating the action by Metamorfyx, LLC. She said the jurist erred in barring
any meaningful testimony by the plaintiff’s expert on damages, thus depriving
it of the opportunity to prove its case.

An
expert witness, Grimes declared Friday in an unpublished opinion, may base an
opinion on reliable hearsay.

Metamorfyx
will get a new trial in its action against the Law Firm of Vanek, Vickers &
Masini; Joseph Vanek, a principal in that firm; the Law Offices of Eugene M.
Cummings, P.C., and Cummings, as an individual; and attorney Brian Cardoza. The
two law firms are based in Chicago and Cardoza, a California lawyer, works for
Southern California Edison in Rosemead.

Ergonomic
Keyboards

The
owners of Metamorfyx, Robert Granadino and Hernan Camacho, in the 1990s
developed, and gained patents on, an ergonomic keyboard, to reduce chances of a
PC-user acquiring carpal tunnel syndrome from repetitive keystroking. Several
manufacturers put such keyboards on the market, in disregard of the patents.

“The
biggest infringer,” Grimes noted, “was Microsoft.”

Although
Microsoft challenged the breadth of the first two of three patents (gained in
1994 and 1996), the Patent Office affirmed its original determinations.

Actions
against the manufacturers were brought, or threatened, and virtually
all—including Microsoft—agreed to pay Metamorfyx royalties. However, the 1997
agreement with Microsoft, which provided for $1 to Metamorfyx in connection
with the sale of “royalty bearing keyboards,” defined that term narrowly.

About
$700,000 was paid in royalties. However, Microsoft proceeded to sell nearly 28
million ergonomic keyboards without paying royalties, and Metamorfyx made a
demand for moneys it insisted were due it.

Pursuant
to a provision in the licensing agreement, the dispute was arbitrated.
Metamorfyx lost.

The
arbitrators found:

“The
License Agreement does not provide, as many licenses do, that royalties are due
if the products would infringe any claims of the licensed patents.”

Under
the contract, the arbitrators determined, payment of a royalty was due only
upon sale of a keyboard with “legs pivotally attached to the keyboard for
elevating the wrist support,” and not on every keyboard utilizing a feature
covered by the patents.

Granadino
and Camacho insisted they knew nothing of this limitation. They and their
company sued the lawyers, alleging their conduct fell below the normal standard
of care.

Statement of
Damages

In
the plaintiffs’ Sept. 10, 2013 statement of damages, this is alleged, with
respect to the negotiations with Microsoft:

“Due
to the Defendants’ negligence, Plaintiffs have incurred general damages in the
amount of $27,897,669 on this claim. Pre-Judgment interest amounts to
$22,199,880, for a total of $50,097,549.”

The
amount of general damages claimed was derived from data bared by Microsoft in
connection with the arbitration. The data related to sales of keyboards between
2006 and 2009.

Combined
with other claims, including anticipated post-2009 sales extrapolated from
2006-2009 data, it was declared that there was a “grand total of $59,553,610”
in monies owed Metamorfyx.

Attorney
fees to the prevailing party are also at stake.

At
trial, there was testimony that licensing agreements normally provide for
royalties where any feature of the manufactured product is covered by the
licensor’s patent. That, however, was not enough; Metamorfyx’s prospects of
victory were doomed when Kalin ruled that testimony of the plaintiffs’ expert
on damages would be circumscribed.

No
witness from Microsoft had laid a foundation by identifying the data as having
been derived from a business record, the judge noted, concluding that it was
inadmissible hearsay.

The
expert could testify, Kalin declared, but not as to any calculations based on
data provided by Microsoft. His core calculation was, however, based on $1
times the number of 2006-2009 sales which Microsoft reported.

Grimes’ Opinion

Grimes
wrote:

“The
trial court prejudicially erred, because an expert may base an opinion on
reliable hearsay, and we discern no basis for finding the Microsoft sales data
was unreliable….

“It
was undisputed that Microsoft’s outside counsel produced the sales data to
plaintiffs’ counsel…for use in the arbitration between Metamorfyx and
Microsoft. Plaintiffs provided defense counsel and the court with a copy of an
email stream between Microsoft’s counsel and plaintiffs’ counsel, along with
hundreds of pages of data marked ‘confidential’ bearing Microsoft Bates
numbers. We have examined this evidence and can detect no reason to find it is
unreliable. Moreover, defendants have never claimed the email or the sales
data are not authentic.”

The
opinion upholds Kalin’s grant of a nonsuit as to Granadino and Camacho because
they had vested all of their rights to the patents in Metamorfyx, and had no
independent standing.